US labor market powers ahead, but wage growth loses steam
The US economy added jobs at a solid clip in December, pushing the unemployment rate back to a pre-pandemic low of 3.5% as the labor market remains tight, but Federal Reserve officials could draw some solace from a moderation in wage gains.
Still, the US central bank’s fight against inflation is far from being won. The Labor Department’s closely watched employment report on Friday also showed household employment rebounding by a whopping 717,000 jobs last month.
Recent declines in household employment had fanned speculation that nonfarm payrolls, the main measure of employment gains, were overstating job growth.
Labor market resilience, despite the Fed embarking last March on its fastest interest rate-hiking cycle since the 1980s, is underpinning the economy by sustaining consumer spending. It, however, raises the risk the Fed could lift its target interest rate above the 5.1% peak it projected last month and keep it there for a while.
“The labor market remains resilient but is losing pep and worker shortages remain intense,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “While wage growth has moderated, it’s still far from consistent with price stability. Don’t look for the Fed to ratchet down its hawkish talk or slow the pace of rate hikes on February 1.”